Administrative Law & Regulatory Practice

More Stealth Regulatory Reform

William Funk

One of the first pieces of "Contract with America" legislation—the Unfunded Mandates Reform Act—included without much fanfare or public knowledge a title on Regulatory Accountabil-ity and Reform that requires agencies to prepare cost-benefit analyses whenever a regulation imposes a $100 million annual "mandate" on state, local, or tribal governments or on the private sector. See Report Card on Regulatory Reform, News (Summer 1995) (available on Westlaw). At the end of March Congress enacted one of the latest pieces of "Contract" legislation—the Contract with America Advancement Act of 1996—better known at the time for its raising of the debt ceiling and ending the standoff between Congress and the president. Also in that legislation, however, is the Small Business Regulatory Enforcement Act of 1996. That Act contains a number of different provisions, including a new congressional review of agency rules, but it also amends the Regulatory Flexibility Act in significant ways.

The Regulatory Flexibility Act was originally enacted in 1980. 5 U.S.C. §§ 601-612. It essentially copied the requirement in the National Environmental Policy Act (NEPA) for Environmental Impact Statements, requiring agencies to make preliminary and then final "regulatory flexibility analyses" to accompany an agency’s proposed and final rules, if the rule would "have a significant economic impact on a substantial number of small entities." "Small entities" are defined as small businesses, small nonprofits, and local governments with populations less than 50,000. The regulatory impact analysis is to describe the nature of the rule, its impact on small entities, and regulatory alternatives that would have less economic impact on small entities. The final analysis must also contain a summary of issues raised by commentators and the agency’s response. Unlike NEPA, however, the Regulatory Flexibility Act specifically exempted from judicial review all agency determinations and analyses under the Act. As a result, agencies widely ignored the Act.

While the 1996 amendments generally make small changes to the requirements for analyses (in particular to make clear that they apply to Internal Revenue Service interpretive rules that impose reporting or recordkeeping requirements), there are two major changes with potentially far-reaching effects. First, the amendments eliminate the exemption from judicial review. Second, the amendments impose new, special burdens on rulemaking by the Environ-mental Protection Agency and the Occupational Safety and Health Administration.

With the elimination of the exemption from judicial review, now all the Act’s requirements are fully subject to traditional judicial review under the APA in a lawsuit brought by a small entity, although generally a one-year statute of limitations is imposed. In addition to the relief that courts ordinarily can provide under the APA, the amendment specifies that a court can also "[defer] the enforcement of the rule against small entities unless the court finds that continued enforcement of the rule is in the public interest." Thus, judicial relief for violations of the Act can be invoked only by small entities, and judicial relief for violations can be, but need not be, limited to small entities.

When EPA and OSHA engage in rulemaking that may have significant economic impacts on a substantial number of small entities, those agencies are required to provide information on the potential impact on small entities to the Chief Counsel for Advocacy of the Small Business Administration before issuing the notice of proposed rulemaking. The Chief Counsel within fifteen days is to identify representatives of affected small entities for the purpose of obtaining their advice and recommendations regarding the impact of the proposed rule. In addition, those agencies must convene a review panel of persons from within the agency responsible for the proposed rule, from the Office of Information and Regulatory Affairs in the Office of Manage-ment and Budget, and from the Chief Counsel’s office. The panel is to review the agency’s information, the proposed rule, and the advice and recommendations from the private representatives. Within sixty days, the review panel is to report its findings on the impacts of the proposed rule on small entities and possible alternatives. In light of this information, "where appropriate," the agency is to modify the proposed rule and/or the initial regulatory flexibility analysis. In other words, this is all to occur before the proposed rule is published. The amendments authorize the Chief Counsel to waive the review panel requirements (after consultation with the private representatives), if he determines it would not advance small entity interests. The amendments identify three factors that are supposed to govern that determination: that the agency consulted with representatives of small entities and took their concerns into consideration in the development of the proposed rule; that special circumstances require prompt issuance of the rule; and that providing the private representatives the special forum would give them a competitive advantage relative to other small entities. It is obvious that these new requirements could create significant burdens on EPA and OSHA rulemaking.

During the regulatory reform debate last year, a major sticking point related to required periodic review of rules. The Regulatory Flexibility Act has always required a ten-year review of existing rules that have a significant economic impact on a substantial number of small entities, but this too has been widely ignored in light of the lack of judicial review. Now, with judicial review of compliance with the rule review provisions, the mandatory reviews that come due ten years after arule is adopted may create many of the problems foreseen by the proposed regulatory reform provisions.

Finally, the amendments attempt to provide some benefits to small entities that are defendants in regulatory enforcement actions. First, they require agencies to establish policies for reducing or waiving civil penalties applicable to small entities. Second, they amend the Equal Access to Justice Act by providing for government payment of the small entity’s attorneys’ fees and expenses in an enforcement proceeding by the agency against the small entity, if the agency’s initial "demand" was "substantially in excess" of the final decision and was "unreasonable when compared with such decision," unless the small entity committed a willful violation or acted in bad faith, or the facts would otherwise make an award unjust. Third, the cap on attorneys’ fees is lifted from $75 to $125 an hour.

William Funk is Professor of Law, Lewis and Clark Law School, in Portland, Oregon.

This article originally appeared in Administrative & Regulatory Law News, Summer 1996 (21:4) .